Agencies and agency workers: recent case law

Sue Nickson, Partner and International Head of Human Capital at Hammonds, continues a series of articles on employment agencies and agency workers with a look at recent case law.

Organisations use agency workers for a variety of reasons, including to provide cover for short-term labour shortages, to work on specific projects or simply to keep the official headcount down. Historically, employers have been able to hire agency workers and be fairly safe in the knowledge that such individuals - because they were not employees - could not bring unfair dismissal claims when their services were terminated.

However, the courts have been increasingly willing to treat agency workers as employees of the company for which they work. Dacas v Brook Street Bureau [2004] IRLR 358 CA was the first case on this subject to set the alarm bells ringing for employers. More recent case law has, however, suggested that the courts are stepping back from Dacas and are less inclined to imply a contract of service between an agency worker and the end-user.

James v Greenwich Council [2007] IRLR 168 EAT and Cairns v Visteon UK Ltd [2007] IRLR 175 EAT both concerned the triangular relationship between the work-seeker, the employment business and the end-user.

James v Greenwich Council

Ms James was supplied by an agency to work for Greenwich Council. She had no express contract with the council, but had entered into a temporary worker agreement with the agency. The agreement made it clear that Ms James was not its employee. When the agency terminated Ms James's services, she brought a claim for unfair dismissal against the council, contending that, in light of Dacas, the tribunal should imply a contract of employment between her and the council. The tribunal concluded otherwise and its decision was upheld by the Employment Appeal Tribunal (EAT).

The EAT made it clear that Dacas did not state that a tribunal had to imply a contract of employment between a work-seeker and an end-user: it merely had to address its mind to the possibility of there being such a contract.

The EAT also pointed out that, in order for there to be a possibility of a contract between a work-seeker and an end-user, there still had to be both mutuality of obligation between the parties and a suitable degree of control exerted over the work-seeker. While the council potentially exerted sufficient control over Ms James, the EAT took the view that there was no mutuality of obligation between the parties. On the facts, Ms James was not obliged to work for the council and it was not obliged to accept her services. The EAT noted that when Ms James was ill, the agency simply supplied the council with an alternative worker. Furthermore, Ms James had accepted that she was willing to (and could be required to) work for other clients of the agency and so had effectively conceded in evidence that the agency relationship was not a sham. The EAT also said that Ms James's five years of work with the council did not of itself mean that the tribunal had to imply a contract of employment. In this respect, the EAT disagreed with comments made in Dacas to the effect that once arrangements of this sort had been in place for a year or more, there would be an inference that an implied contract of service did exist.

The EAT gave some guidance on the factors that tribunals should consider when deciding whether or not to imply a contract between a work-seeker and an end-user. It said that, as a general rule, a tribunal should not imply a contract unless the arrangements between the work-seeker, the agency and the end-user were a sham, ie they did not reflect the actual working relationship between the parties. It gave the example of Cable & Wireless v Muscat [2006] IRLR 354 CA (where Mr Muscat was initially employed by the company, but subsequently became a contractor and provided his services via an agency in order to reduce the headcount) and said that a tribunal was most able to infer a contract of employment in cases such as this where the agency relationship was effectively superimposed on a previous employment relationship (where the work-seeker is effectively doing an employee's job).

This is good news for hirers and agencies. It means that, provided that they set up arrangements that accurately reflect the real relationship between the parties (as is likely to be the case where there is no pre-existing contract between the work-seeker and the end-user), a tribunal should not (and certainly not automatically) imply a contract between the work-seeker and the end-user, even if the work-seeker has been working for the hirer for more than a year.

To minimise the risk of a claim, end-user employers should still ensure that any documentation and procedures for managing and administering agency-supplied work-seekers point as far as possible away from the traditional employment relationship. As in James, agencies should normally deal with the payment and administration of sickness and holiday pay, and disciplinary and grievance matters. After all, tribunals will continue to focus on what actually happens on a day-to-day basis, regardless of what the written contract says. It is also still advisable, where possible, to restrict the use of agency workers to short periods of time or specific projects, or at least for the agencies to exercise periodically rights in the agreement to send the work-seeker to another client and another worker to the client.

On the face of it, agencies that supply work-seekers to end-users are unaffected by the James decision. However, end-users frequently seek to protect themselves against the risk of receiving claims from work-seekers by including indemnities in agreements with agencies. The James decision should give agencies some comfort that those indemnities might not be called on after all. It might also strengthen an agency's negotiating position in any such discussions.

Ms James has appealed against the EAT decision and her appeal is due to be heard by the Court of Appeal this autumn.

Cairns v Visteon UK Ltd

Cairns v Visteon UK Ltd [2007] IRLR 175 EAT deals with a slightly different point to James, but the decision should also provide some comfort to end-users.

Ms Cairns worked for Visteon from 1998 until 2005. From 2001, she provided her services via an employment business called MSX. When her employment was terminated she brought a claim for unfair dismissal against MSX. She subsequently withdrew this claim and added Visteon as the respondent instead, apparently because it was Visteon's decision to dispense with her services, which had led to her dismissal by MSX.

As in James, Ms Cairns argued that the tribunal should imply a contract of employment between her and Visteon, thus giving it jurisdiction to hear her claim. However, her arguments were unsuccessful. While the EAT refused to rule out entirely the possibility of there being parallel contracts of employment between a work-seeker and both the agency and the end-user at the same time for the same work, it said that the concept was 'problematic'. The EAT said that it was not necessary to imply a contract of employment between Ms Cairns and Visteon. Not only did she already have a contract with MSX, but also there was no suggestion that the triangular relationship between the parties was a sham. Unlike Ms Dacas, who had no clear employer for unfair dismissal purposes, Ms Cairns could bring (and indeed had initially brought) such a claim against MSX: the fact that her claim might not be successful was a different matter.

The EATadmitted that a contract of employment is likely to be implied, if necessary, to procure a suitable respondent, otherwise the worker is not protected against unfair dismissal if the employment relationship falters. That leaves the responsibility lying between the agency and the end-user, both consequently doing their best to place control issues (eg discipline, holidays, expenses and sick pay) in the other's hands. The end-user will almost inevitably 'control' the work-seeker's daily tasks, but it should avoid the rest of the work-seeker's contractual arrangements.

Craigie v London Borough of Harringey

In Craigie v London Borough of Haringey EAT/0556/06 Mr Craigie had entered into a contract with an agency and was subsequently placed with Harringey Council. The contract provided that he was not an employee of the agency.

Mr Craigie later applied for a permanent position with the council and received a provisional offer of employment. The offer was subsequently withdrawn on the grounds of unsatisfactory references and Mr Craigie stopped working for the council (he had worked for it on a temporary basis for over 12 months). The employment business also dispensed with his services and Mr Craigie brought claims for unfair dismissal and breach of contract against the council.

The tribunal held that Mr Craigie was not an employee of the council and that it had no jurisdiction to hear his claims against it. Mr Craigie appealed to the EAT.

The EAT was asked to establish whether or not there was an implied contract of service between Mr Craigie and the council. Mr Craigie's representative sought to argue that the case was indistinguishable on the facts from Dacas. Following the approach taken in Muscat, the EAT noted that Dacas was not a binding authority for the existence of an implied contract of employment. The EAT further noted that Mr Craigie had given oral evidence that he knew that the council could say to him at any time 'don't come to work' and that he himself could have chosen not to go to work at any time (albeit that he would not have been paid). The oral evidence in the latter respect also served to defeat his representative's second point that there was mutuality of obligation between him and the council. The EAT also rejected the representative's third point by agreeing with the tribunal that the implication of a contract of employment was not necessary in order to give business reality to the parties' situation, since the triangular relationship provided for in the two contracts (between the agency and Mr Craigie and the agency and the council) had governed the employment situation without difficulty for a year, ie a contract of employment should be implied only when necessary. Mr Craigie's appeal that there was was an implied contract of service with the council was therefore dismissed.

Heatherwood & Wexham Park Hospitals NHS Trust v Kulubowila and Others

In Heatherwood & Wexham Park Hospitals NHS Trust v Kulubowila and Others EAT/0633/06 Mr Kulubowila had entered into a contract headed 'terms of engagement of temporary workers' with the agency that had placed him with the trust. Under the agreement, the agency was not obliged to provide Mr Kulubowila with assignments. He unsuccessfully applied for a permanent position with the trust 18 months after he had commenced his assignment with it. Six months later, the trust ran short of money and stopped paying the agency for Mr Kulubowila's services. As a result, Mr Kulubowila's assignment ended and he brought a claim for unfair dismissal against the trust.

At a preliminary hearing review, the tribunal held that Mr Kulubowila was an employee of the trust because he had an implied contract of employment with it and that the tribunal therefore had jurisdiction to hear his claim. The EAT allowed the trust's subsequent appeal.

In considering whether or not a contract of employment should be implied into the relationship between Mr Kulubowila and the trust, the EAT observed that it was not enough to form the view that because Mr Kulubowila 'looked like an employee of the trust, acted like an employee and was treated like an employee, the business reality is that he was an employee and the tribunal must therefore imply a contract of employment'. The EAT further held that, where the affairs of the parties were consistent with the express arrangements, it cannot be said that it was necessary to infer a contract of service between the trust and Mr Kulubowila, particularly as the trust had rejected his application for a permanent position - which was itself inconsistent with an inferred intention by the trust to contract with him. The EAT also found that there was never an express contract of employment at any stage between the trust and Mr Kulubowila.

Astbury v Gist Ltd

In Astbury v Gist Ltd EAT/0446/04 the appeal heard by the EAT differed to that in Heatherwood in that Mr Astbury sought to argue that the agency acted as an agent for the end-user. Mr Astbury had complained that he had been unfairly dismissal by Gist and had also contended that he was employed by it under an implied contract of employment. The tribunal found that Mr Astbury was employed by the agency, but that there was no contract of employment between Mr Astbury and Gist as the contract between them was made with the employment business as principal and not as an agent for Gist.

Mr Astbury appealed. The EAT dismissed his appeal, finding that the fixed-term agreement that Mr Astbury had entered into with the agency was a contract of service and it thereby undermined Mr Astbury's claim that the agency was acting as an agent for Gist.

Conclusion

While end-user employers that use agency-supplied work-seekers remain vulnerable to unfair dismissal claims, it would appear from recent case law that the courts are increasingly reluctant to follow Dacas and will imply a contract of service between the work-seeker and the end-user only in exceptional circumstances. Each case will continue to turn on its facts and work-seekers attempting to establish employee status will need to identify factors consistent with and indicative of an employment relationship. The courts have also repeatedly stated that the law regarding the status of agency workers is inadequate and that appropriate legislation is needed to address this issue - a step that, to date, the Government seems reluctant to take.

Next week's article will be a case study on agency workers.

Sue Nickson is Partner and International Head of Human Capital at Hammonds (Sue.Nickson@hammonds.com)

Further information on Hammonds Solicitors can be accessed at www.hammonds.com